“Buy the ticket, take the ride” – Hunter S. Thompson

Now, this isn’t a critique of the inevitable conflicts (real and perceived) inherent between these various groups.  Nor is it a post about the differences between Accounting and Marketing.  In order to do that, I am missing one critical piece.  My good friend Dan’s “Top Ten Differences between Accounting and Marketing List“.  Maybe with your help, readers, we can convince him to give it up.  Add your thoughts in the comments section!

NO.  This post is about posing a simple question:

How are your Year End spreadsheets doing?

Year End is upon us!  Everyone knows, thanks to these accounting blogs:

• Look at Last Year’s File
• Accounting Nation
• Accounting WEB
• CPA Trendlines
• re: The Auditors
• Junior Deputy Accountant (warning: Language)
• and Going Concern

Everyone knows that Audit Professionals have been raked over the coals of more stringent regulation and oversight the past few years (for all the good it’s done!).  And, if my experience is at all representative of our collective experience on the industry side, the auditors have been passing all of that regulation onto you!

Preferred method of passing = The Paddle

The paddle will be heading your way again soon enough.  Time to rollover all those Year End files and clean up for prepping 2009’s close.  The rigors of financial reporting compliance are staring us right in the face once again.  Oh, and Merry Christmas by the way.

Of course, I think that if the past 2 year’s have taught us anything, it’s that regulation is ineffective in preventing fraud.  I would like to know where Frank Abagnale jr. stands on this issue.  Abagnale is the character upon which the movie Catch Me If You Can is based and for the past 35 years he’s been helping the FBI, businesses, and government cope with matters of fraudulent activity.  I highly recommend his book, Art of The Steal, for anyone interested in learning more about specific industry-related fraud risk.

Ultimately, prevention is the key; and if that’s true, historical financial reports will never fulfill that role.  I realize that doesn’t mean we shouldn’t try, but my view is that (anecdotally) auditors are getting hung up on details that bear little or no relation to the real risks.  Reason has been traded for checklists.

Be that as it may, you guys are still going to be toiling over this stuff, at their mercy, in the very near future.  At the same time, you will be expected by your management team to provide ACTUAL insight into the ACTUAL operations of your ACTUAL business.

Operations.  This is where the rubber meets the road.  Here is where you can’t “juke the stats“.  Yet, due to the pressures around the financial reports (case in point above), our operations reports are given second billing (if that – after payroll, A/R and collections, admin, etc).  To give you an idea of how much they are marginalized, there isn’t even a Wikipedia entry for Operations Reports!

I don’t see the issue with the auditors changing or going away anytime soon.  For me, there’s no reason to be optimistic or to engender optimism in you regarding that!  This is the system we live with for the moment.

Operations Reporting has to find a way to fit within the time constraints given these other pressures.  Either it fits in by 1) doing less or 2) doing more in less time.  How would you prefer to deal with your Operations Reports?

Do you have questions about the difference between Financial Reports and Operations Reports?  What are your views with respect to how this all fits together?  Let us know in the comments (and don’t worry, no salesperson will visit you).

When you talk about the true viability of the business, what does it really mean?

Closing links:

• Here’s a great segment talking about why we should question Ratings Agencies
• Embedded copy of IDCs Predictions for 2010

Enjoy!

Top 10 IT Predictions for 2010

Related posts:

1. Business Reporting ≠ Dishwasher Job
2. The Roots of Business Reporting Technology
3. The Importance of Stories

(There are number of definitions out there, but I think the above serves the purpose)

There’s a lot of Buzz around the concept of Design Thinking at the moment.  A great deal of content has been produced, but I’m not sure how much has been directed toward the accounting and finance community.  During the past 2 years for us, listening to someone talk about “radical innovation” usually entailed mostly hand-wringing and, well, … expletives.  It’s understandable to have missed some of this.

So, I’m not sure how much about the topic has filtered in.  Maybe that’s a good discussion point for the comments:

• How much of the Design Thinking paradigm has filtered into the accounting and finance community?
• How applicable is this school of thought to accounting and finance?
• Do you believe there is a place for Design Thinking in accounting?

I’m interested in “jumping in” because I think there’s a natural connection between the way of thinking that underlies Design Thinking and the way of thinking underlying big parts of accounting.

The three main activities of Design Thinking are actually used extensively in our field.

I think we can all relate to:

1. The Mystery: pondering questions to enhance understanding of what is, or has, happened

2. Developing a Heuristic: a rule of thumb that helps narrow the field of inquiry and work the mystery down to a manageable size

3. The Algorithm: formal system for managing knowledge

We might consider this process when reviewing month end variances, or considering an asset’s useful life for amortization purposes.  Maybe we are reconciling transactions, ascertaining fair value, or while planning business combinations.  There’s an investigative nature to accounting that requires these critical thinking activities.  Maybe it’s something we wish we did more of.  Maybe these lessons bear repeating.

Viewing it from this perspective, the accounting and finance functions are subject to the same pressures affecting any other group as we try to balance the broader vision with our day-to-day routines.  When does the complacency of routine dull us to the level of engagement required to maintain the effectiveness of our critical thinking?

The choice is between being truly able to internalize this active, participatory way of thinking; or, just looking in the file for what was done last year.

Roger Martin (Thought Leader in the field and Dean of the Rotman School of Management at University of Toronto) cautions against casual use of the term, Design Thinking, when he was questioned recently by Nora Young on CBC’s Spark podcast.

She closes the interview with this:

Nora Young: The other part of me, the cynic, thinks ‘this is just another management buzzword’.  How do you get people to take this really seriously and do the kinds of stuff that’s really required to rebuild the organization rather than just paying lip service to it?

Roger Martin: Well, I think it already has passed into management buzzword; right so, and I think this has happened many times before, where the world of business gets excited about some concept and typically that concept has some validity and some utility; but then, it gets pushed far beyond what it should have… and lots of people who know nothing about it actually hop into the terrain and it gets diluted…

If it hasn’t already happened with Design Thinking, it will.  I don’t have rose-coloured glasses on about that phenomenon.

You can see that Martin differentiates between the inevitable decline into buzzword status of “Design Thinking” with the value of the concepts at its core.

Let’s look at the core stuff while accepting the dilution of the term.  And, if Martin has no illusions, neither should I:

I could be one of the very people Martin warns of.

In my view, the core concepts are more foundational, more universal; this construct of Design Thinking is just the shiny, new wrapper.  The way of thinking that underlies the theory is the critical component.  What it’s called tends to change, but what’s required to make it happen does not.

Peter Senge, author of the well known management book, The Fifth Discipline, and Director of the Center for Organizational Learning at the MIT Sloan School of Management sums it up in an exchange with another management guru, Bill O’Brien (deceased), ex-CEO of Hanover Insurance here:

Peter Senge: If everybody thinks this is so great, how come it doesn’t exist?

Bill O’Brien: We have no idea the kind of commitment required.

In this exchange, they are referring to the management paradigm of their day, Systems Thinking (circa 1990). The difficulty in achieving benefits from these theories turns out to be every bit as universal as the underlying concepts.

The equation is, easier said than done multiplied by talk is cheap.  Without action, nothing happens.  Without action, regardless of whether we talk about Systems Thinking or Design Thinking, it’s “just another management buzzword”.

In Systems Thinking, it’s about exploring patterns of interdependency, dispelling the myth that we are all highly independent.  A lot of it involves the same stuff as Design Thinking; asking questions, revising assumptions, understanding relationships.

Think: Action

The Design Thinking model is really well defined in this excerpt from the Noise Between Stations blog:

Based on a review of writing on the topic, I have synthesized for myself what I understand design thinking to be…

Collaborative, especially with others having different and complimentary experience, to generate better work and form agreement

Abductive, inventing new options to find new and better solutions to new problems

Experimental, building prototypes and posing hypotheses, testing them, and iterating this activity to find what works and what doesn’t work to manage risk

Personal, considering the unique context of each problem and the people involved

Integrative, perceiving an entire system and its linkages

Interpretive, devising how to frame the problem and judge the possible solutions

Read more: http://noisebetweenstations.com/personal/weblogs/?page_id=1688#ixzz0WPzb9vRa

This is all substance over form stuff.  How does stuff actually get done?  What happens when what something is called does not match what it is?  How does structure influence behaviour? And vice versa.

We know about this stuff, but don’t always think actively about it.

What’s our next move?

As a group, it’s our responsibility to take the lead on innovating our financial and managerial reporting and accounting systems.  I’m mainly referring to Operations Reporting here; but quite frankly, I think Financial Reporting could use a look too.  How can we more effectively achieve our reporting goals while enhancing value for users?  Where is optimal value and how does that value point change over time?

The following clip is Tim Brown, CEO of Ideo, discussing Design Thinking.  I encourage you to watch and then think about how Design Thinking can be applied in our field.

Roger Martin on Tim Brown:

“he’s great at designing relationships with his clients, ways of getting stuff to actually happen”

Share your thoughts in the comments!

Remember; the links throughout the article lead to additional content if you want to learn more.

Related posts:

1. Accounting for I.T. in the Finance Department
2. Accounting for Interdepartmental Language Barriers – Accounting and IT
3. Accounting for Interdepartmental Language Barriers – Accounting and IT Part 2

Anyone else have a “Lumbergh Moment” they would like to share?

So, it’s Friday.  Time to swap some war stories!  I’ll start:

For me, there was one Finance Director in particular who was famous for ambushing me with these “last minute” requests.  Usually though, the request would come down on a Saturday at 2:30pm.  I was working in a retail back office.  For those of you unfamiliar, the industry favours a 4-week fiscal period.  This translates into 13 fiscal periods per year.  I can only hope it wasn’t an accountant who created this monster.  It feels like you are closing ALL THE TIME.  It also means that period end is always on a Friday, and we were always in on the Saturday burning to make the hard close date by Tuesday.  Add an aging and crash-prone CMS system, various other disparate back office systems, a vertigo-inducing, excel-based Cost of Product Report (per operating unit), and you’ve got good times.  Saturday usually ended for me between 9pm and 11pm.  I could catch a few hours sleep and get back at it on Sunday!  At which time, I could finish up with those untimely requests… until next time.

The point is, during all of that time and indeed throughout my accounting career, this tempo was never viewed by myself or my colleagues as a burden so much as a Badge of Honour.  Think about it.  Is there not a certain element of pride and satisfaction that comes with persevering over, under, and through these logistical and technical challenges?  I don’t know why.  Do your non-accounting colleagues look at you like you’re crazy when describing your weekend in the office?  Is it a dopamine issue?  OCD?  Perhaps.

Maybe there’s more.  Maybe there’s fun in the work that offsets the hours.  I don’t know many accountants who are interested in punching a timeclock or joining what I refer to as the “4:30 Track Team”.  You know the guys.  You can visit their cube at 4:31 and their chair is ice-cold, the cube looks museum-like in its stillness.

There are scores of instances I can think of from my past when a monster project became exactly that, a Badge of Honour.  How else do you differentiate yourself?  I don’t suppose going round and round with the chicken and egg routine (or Abbott and Costello) about why will ever resolve it so I won’t go there.  Instead, I’ll open the floor to some of your best and worst tales from the trenches.

What have you got?

Related posts:

1. Bringing Design Thinking to Accounting and Finance
2. Business Reporting ≠ Dishwasher Job
3. Running the gauntlet of Year End Business Reporting

“Hard work is a prison sentence only if it does not have meaning”
- Malcolm Gladwell, author of Outliers

“Finding the one or two key numbers that drives success in your business, and bringing them to everyone is very powerful in a business”
– Joe Knight, co-author of Financial Intelligence

The inspiration for this post was a management improvement video (13 minutes) posted on You Tube by http://www.harvardbusiness.org of an interview with Joe Knight, co-author of the book series “Financial Intelligence”, Business Owner, and Harvard Business.org blogger.  The central message of the interview was that everyone in an organization benefits from understanding the numbers by which success is measured within a business.  The trick is finding the right numbers.  Particularly in today’s climate hearing about transparency is nothing new, but what doesn’t get as much play is this idea of narrowing the focus on measures of performance.

With respect to the numbers: Thanks to technology, we now have ALL the numbers available ALL the time. Reports have become super-robust because they can.  Although there’s an argument for providing surplus information and letting the end user choose which parts to digest, there is also a great danger.  Knight argues that providing less information to end users can actually produce better business intelligence.  The process of asking the questions and finding the underlying systems within an operating group can enable a more focused, effective approach to providing reports. First, understand the work flow and underlying system of work for operations groups; then, develop measures around them.  It’s easy to say, but when was the last time these conversations have taken place in your business?

“Business is like a game, and if you don’t understand the finances, you’re basically playing a game where you don’t know score”
- Joe Knight

According to Knight the emphasis should be, and this is where the interview really resonates with me, on providing a small number of operational metrics in a simple way and providing them to everyone.  He rightly points out that the people receiving this information probably don’t want to be accountants, and have little or no interest in double-entry accounting “no matter how exciting it may appear to be”.  For Accounting and Finance guys like us, it then becomes an exercise of translating Business Intelligence into Practical Intelligence in the reports we create to achieve an optimal value.  It would be like one of us attending an advanced physics lesson.  We would get way more out of it if someone simply dropped an apple on our heads.  Sometimes less is more.

The implied point here is that results are distributed throughout the business, not just to top managers.  Doing so, creates what Knight dubs “psychic ownership” so that even though employees may not BE owners of the business they start to ACT like owners.  This occurs when an employee can make the connection between his/her own actions and the financial result.  That is why the choice of what gets communicated is so crucial.  Finding one or two key drivers to the business that correlate with the financial results will accomplish this task.  Malcolm Gladwell, (author, and columnist for The New Yorker), makes a similar point, in his best selling book Outliers, about the importance of being able to see the link between effort and reward.  Gladwell contends there are 3 important qualities that define “meaningful work”, 1) autonomy, 2) complexity, and 3) a connection between effort and reward.  FYI, Outliers provides some interesting views through a number of entertaining anecdotes ranging from Bill Gates’ early days to The Beatles.

The book is about elements that contribute to the conditions for success.  The effort-reward piece is illustrated using The Garment Industry of 1890s NYC.  This turns out to be the roots of several top litigation firms in New York.  The moral of the story is that being able to see the connection between effort and reward creates a positive feedback loop.  Hard work becomes meaningful work.  I highly recommend it.

Ultimately, the “score” of the business is represented by the Financial Reports, right?  As accounting professionals, we know the complex process whereby these reports are created. As well, there are the intricacies and nuances associated with the interpretation of these reports.  We have the proper training to derive meaning from them.

Based on my experience, most of us are keen to share any and all of this information (confidentiality permitting) with colleagues.  In the video, Knight argues that we may be guilty of over-sharing; providing far too many KPIs.  If “KPI” is being used to describe every line item in the P&L, you’ve got a problem. The Law of Unintended Consequences kicks in, inadvertently confusing people.

There have been several studies recently on the behaviour of shoppers that would appear to bolster this line of thinking.  Shoppers who are given an abundant choice of product buy less than those given just one or two choices.  If we view the recipients of our internal management reports as “shoppers” and the reports we create as our “product” in conjunction with this behavioural insight that Knight suggests, we can create more effective reports.  At which point, as Gladwell illustrates, we will be able to show the link between effort and reward.

The result is the Meaningful Scorecard; communicating the numbers to people in “a way that gets at what’s important” and “how it affects them”.

So, the question is, what actions and activities correlate with success in your business?

Related posts:

1. RELEVANCE
2. Running the gauntlet of Year End Business Reporting
3. Improving Your Month-end Throughput